Sovereign Wealth Funds: Problems of international law between possessing and recipient States

Abstract

As the influence of Sovereign Wealth Funds (SWFs) is increasing in the world economy, the legal problems between the possessing States and recipient States become very important. The famous Santiago Principles are self-pledges of the governance and activities of SWFs by the possessing States and do not regulate the legal problems between the possessing States and the recipient States. This article considers the following relevant problems from the point of international law: (A) restrictions on foreign investment, (B) sovereign immunity, (C) taxation and (D) responsible investment. As to (A), although restrictions on foreign investment for national security reasons is generally permitted under international law, they should be guided by the principles of non-discrimination, transparency of policies and predictability of outcomes, proportionality of measures and accountability of implementing authorities. As to (B), when SWFs are involved in a civil action concerning holding shares in a company, they cannot enjoy jurisdictional immunity. This is because holding shares come under participation on companies in the United Nations Convention on Jurisdictional Immunities of States and Their Property. As to (C), there is no established rule of customary international law whether SWFs are granted exemption from taxation in recipient States. State practice is mixed. Some States including Japan do not categorically grant exemption from taxation to SWFs, but grant it to specific SWFs based on bilateral tax treaties. As to (D), Norway’s Government Pension Fund Global and New Zealand Superannuation Fund are faithful to the method of responsible investment. The heart of its responsible investment lies in the disinvetement and negative screening in particular. The disinvestment does not constitute unlawful intervention under international law. Finally, the balance of interests between the possessing States and the recipient States has to be kept in order to attain an equitable result. The concept of equity, although somewhat ambiguous, can play an important role in this field.